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Saturday, 25 November 2017

Issues in Development: Not by the Dollar Alone!

It seems that whenever  a Sudanese wakes up in the morning and before doing his prayer ,the first thing that comes to his mind is how much is the U.S. Dollar worth(?)  Instead of asking himself how much he expected to add to the national income of the country. By observing these naïve notions about a currency which reflects the strength or weakness of another country than his own one feels very sad really sad. One is even reluctant to write or talk about because it unfortunately reflects unusual ignorance about the meaning of a currency of a country. The value of any currency reflect its value vis-à-vis other currencies of the world. Hence a country such as Sudan which  produces what it does not consume and consumes what it does not produce will need to do its utmost effort to explore the potential of the country  which could be produced and exported in order to obtain the necessary world currencies to pay for what it does not produce domestically. That is why the first part of the balance of payments is called the balance of trade i.e. exports and imports. The performance of these two items reflect the strength of the economy. The more it can export and less to import is better so that a country can have what is called a surplus in its balance of trade. This is the visible side(goods ) and when the invisibles (not visible goods) both export and imports are added we will have what is called the balance of payments on current account. These two items both visible and invisible are under the control of management of the economy. This balance on current account reflects the strength of the economy. The second most important part is the Capital account which is usually governed by factors other than what governs the Current Account.
Historically and during the British Administration specially after the starting of export of Cotton to UK, and until Sudan obtained independence those responsible for the affairs of the colony were extremely careful that exports of Sudan should remain more than imports. This is so because if there is a deficit in the balance of trade who would be responsible to finance it? The surplus used to be kept in UK. These balances happened for many of the British colonies and after independence were given back to the various colonies. They were known as the “Sterling Balances”. Whether such balances were wisely spent or not is another issue. The question might be as how the British administrators did it i.e. controlling imports not to exceed exports. Imports were a bare necessity. Instead of importing private cars and buses they introduced the Tram through Sudan Light and Power Company. In addition they brought in some of high Italian buses from then Eritrea. One seldom sees private cars. Trams were a very cheap means of transport and used to get everyone to his office on time. The lines were spread  across the three towns. The exception was a river ferry between Abu Rouf and Bahri near the Faculty of Agriculture, University of Khartoum. After independence the tram was sold.
 Instead of importing ready textile the administrator encouraged the traditional cloth making in Al Norab near Shendi. It used to be very attractive especially with the British and also liked by Sudanese women instead of imported textiles from UK. Expectations were minimal and the levels of income extremely modest. Bare necessities were allowed. In this way with the exception of one year there were always surpluses which were kept in Britain’s banks. After independence Sudan got about Sterling Pound 59 million from Britain as accumulated surpluses. Once it came under the independent Sudan such dear foreign exchange was gradually spent on importation of various necessities not imported during the foreign administration.
 This is the imperial wisdom which Sudanese policy-makers missed to make use of after independence. Instead of carrying on with the simple way of life exporting more and keep a simple consumption pattern and saving foreign exchange for further development as the Chinese did for over fifty years, we gradually spent these dear resources   importing what we need and what we do not need and stretching ourselves beyond our available means. The country started to be dragged into getting foreign resources from international financial institutions in the form of loans and also grants from friendly countries. The policy was more or less mercantilist. However for a number of decades the unusual alternation in governance as between military and civilian rule had precipitated considerable changes  in economic policy-making. This has the impact of establishing some failed projects thus creating a high level of international debt which stand now about US $50 billion. During much of the seventies and eighties of the last century, there used to be a Foreign Exchange Budget which used to be prepared  between the Bank of Sudan at that time and the Ministry of Finance and approved side by side with the main State Budget. One does not remember when it was abandoned. So there was no much fuss about foreign exchange or the rate of exchange of the national currency as is the case today. Even if we come to the time when the present government succeeded in (1999) making the Sudan an oil exporting country for the first time, there was hardly any mention about the exchange rate of any currency specially after the oil proceeds started to flow into the central bank. Any person  can take two Sudanese Pounds and gets one US Dollar or Euro from any bank without any difficulty or questioning. In fact such a state of affairs  encouraged a good number of Sudanese for reasons based on their calculations to convert their saving of local currency into foreign exchange and took it out of the country. Otherwise how can we explain the billions of US Dollars that are invested by  Sudanese in a country such as Malaysia  as reported in the Malaysian media some months ago. Whether profits of such investments were ploughed back into the country one has no access to such information! That was a good opportunity to accumulate  a reasonable level of foreign exchange reserves as well settle a good portion of Sudan’s debts.
Such action would have made things easy later on. The real problem which led to the present situation is the departure of South Sudan in 2011 taking with it around 75% of the oil resources since most of the oil wells were actually in the Southern region. From then on and with the economic policy of liberalization the Sudan spent almost most of its foreign exchange in the importation of millions of cars trucks and most kinds of luxury  goods etc.etc. This led gradually to the depletion of the existing reserves as well foreign exchange obtained through the export  of some traditional crops as well as gold. Also as much as possible tried to repay under pressure some debts to some creditors. The rate of exchange of the Sudanese Pound in terms of other currencies specially the US Dollar started to deteriorate. Since not much resources in the form of FDI or transfers from the Sudanese Expatriate working abroad or from some friendly Arab countries  flowed adequately the rate of exchange on one Dollar amounted to SD.25-30.In 2000 the rate was one Dollar equal to SD.2 !! This is not the end of the story. In the context of  liberalization exporters were allowed to keep the foreign exchange of exports that they succeed in exporting. The previous practice was that exporters used to surrender  the foreign exchange they obtain from exporting to the exchange authorities in exchange for the national currency. But since  a number of rates of exchange existed it was difficult to deal with the exporters. The led to a creation of a foreign market outside the jurisdiction  of the  Central Bank of Sudan whose one major function  was always caring for such dear resources. Moreover, and this is a very serious practice  which involved pricing the value of every good or service in terms of the US Dollar even if such a good or service does not include any amount of foreign exchange. If one asks for a cup of tea from a lady selling tea, she might be excused to use her cell phone in order to know the  Dollar rate  so that she could tell the customer the price of a cup of tea! It is a joke but very reflective of a real situation.
Now this is a very complicated situation which might lead to a total collapse of business in the country. No body talks about production. One cannot run after a currency which is not reflective of his own  effort and forget to think about supporting his own national currency by hard work and real production. Nations are not built by looking at other currencies which are reflection of the strength and weakness of others. P.T. Bauer of the London School of Economics described a pauper as someone who lives on other peoples effort. That is why he was against foreign aid. Sir John Hicks once said that,” The symptoms of the strain are familiar; inflation, balance of payments deficits, a variety of monetary and exchange disorders. But these are no more than symptoms, the cause lies deeper.” unquote.
Last if the Sudanese policy-makers  or those responsible for the economic sector are not capable or keen to dig deep to know the causes ,then the easiest solution could be to apply to become one of the States of the USA and, therefore, stop the Sudanese people  from talking from morning to late night about the state of the US Dollar!